Wednesday, January 02, 2013

Avoiding the Fiscal Cliff – Estate Taxes


With the Senate tax bill passing the House, it is expected that it will be signed into law. It does not appear that there was a lot of focus on the estate tax. Considering that most tax revenue is generated by the income tax, it is not surprising. Estate planners will at least have some certainty going forward regarding the estate and gift taxes. I was pleasantly surprised to see that the exemption amount will remain at five million dollars ($5,000,000) per person. This means that a married couple with proper planning can pass up to ten million dollars ($10,000,000) estate tax-free. Furthermore, the exemption amount is indexed for inflation. The exemption amount as adjusted for inflation was $5,120,000 in 2012 and should be just slightly higher in 2013. If Congress did not address the estate tax exemption amount it would have returned back to one million dollars ($1,000,000).
 
The other important component of the estate tax is the maximum tax rate. The highest tax rate for 2013 will be 40%. While this is an increase from 35% for 2012, it would have been raised back up to 55% had Congress not acted.

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